Investor presentation sep 2012 (post jevco)


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Investor presentation sep 2012 (post jevco)

  1. 1. Intact Financial Corporation(TSX: IFC)Building a world-class P&C insurerInvestor PresentationSeptember 2012
  2. 2. Canada’s leader in auto, home and business insurance Who we are1 Distinct brands • Largest P&C insurer in Canada • $7.0 billion in direct premiums written • #1 in BC, Alberta, Ontario, Quebec, Nova Scotia • $12.7 billion cash and invested assets • Proven industry consolidator Scale advantage Industry outperformer 2011 Direct premiums written2 ($ billions) Top five insurers $7.0 represent 43.7% 10-year performance – IFC of the market IFC vs. P&C industry2 outperformance $3.4 $2.6 $2.5 $2.4 Premium growth 3.3 pts Combined ratio3 3.4 pts IFC1 Aviva RSA TD Co- operators Market 17.2% 8.3% 6.2% 6.1% 5.9% Return on equity4 8.2 pts share1 Pro forma AXA Canada and JEVCO for a full year2 Industry data source: MSA Research excluding Lloyd’s, ICBC, SGI, SAF, and Genworth. All data as at Dec 31, 2011.3 Combined ratio includes the market yield adjustment (MYA) 24 ROEs reflect IFRS beginning in 2010. IFCs 2011 ROE is adjusted return on common shareholders equity (AROE)
  3. 3. Consistent industry outperformanceSignificant Sophisticated In-house Broker Multi- Proven Solidscale pricing and claims relationships channel acquisition investmentadvantage underwriting expertise distribution strategy returns 2011 metrics Five-year average loss ratios Industry Top 20 102.0% 101.0% 40.0% 100.0% IFC 30.0% 98.0% 96.1% 17.4% 20.0% 96.0% 94.0% 5.6% 10.0% 92.0% 0.0% Combined Ratio ROEIndustry data source: MSA Research excluding Lloyd’s, ICBC, SGI, SAF, MPI, Genworth, IFC and AXA Canada (in 2011)Data in both charts is for the year ended December 31, 2011Includes market yield adjustment (MYA)* Top 20 excludes Lloyd’s, IFC and AXA Canada 3
  4. 4. A strong base from which to grow Enhanced Business Mix Strong Capacity To Outperform Line of Business H1-2011 H1-2012 Combined Ratio1 H1/2012 Personal Auto 49% 46% IFC 92.8% Personal Property 23% 22% Top 20 Industry2 94.3% Commercial 28% 32% Outperformance 1.5 pts Geography H1-2011 H1-2012 Return on Equity3 H1/2012 Ontario 47% 41% IFC4 18.0% Quebec 24% 30% Top 20 Industry2 12.8% Alberta 19% 17% Rest of Canada 10% 12% Outperformance 5.2 ptsNote: Change in business mix reflects the acquisition of AXA Canada 1 Includes MYA 2 Industry data source: MSA Research excluding Lloyd’s, Genworth, and IFC 3 Numbers reflect H1-2012 annualized 4 IFC’s ROE corresponds to the adjusted return on equity (AROE) 4
  5. 5. Solid financial position and excess capital Solid balance sheet $12.7 billion in cash and invested assets*• Solid financial position at Q2-2012: – $649 million in excess capital – Estimated MCT of 205% – Debt-to-total-capital ratio of 19.8% – Book value per share increased 13% from a year earlier to $30.30• Credit ratings - DBRS: A (low), Moody’s: Baa1• Low sensitivity to capital markets volatility: – 1% increase in rates ~ 4 pts of MCT – 10% decline in equity markets ~ 3 pts of MCT High-quality investment portfolio • 98.5% of bonds are rated ‘A’ or better • 87.3% of preferred shares are rated ‘P1’ or ‘P2’ • Minimal U.S. or European exposure • Market-based yield of 3.7% in Q2-2012, down 50 basis points from Q2-2011 Note: Investment mix pro forma JEVCO and net of hedging positions and financial liabilities related to investments.All figures as of June 30, 2012 unless otherwise noted* Includes assets related to JEVCO acquisition 5
  6. 6. Strategic capital management• Strong capital base has allowed us to pursue our growth objectives while returning capital to shareholders Quarterly dividend Capital priorities 8.1% 0.45 8.8% • Dividends 0.40 6.3% $0.40 3.2% $0.37 • Acquisitions 0.35 14.8% $0.32 $0.34 8.0% $0.31 • Share buybacks 0.30 53.8% $0.27 $0.25 0.25 Share buyback history 0.20 $0.1625 0.15 0.10 • 2011(1) – Repurchased 0.8 million shares for a total of $37 million. 0.05 - • 2010(2) – Repurchased 9.7 million 2005 2006 2007 2008 2009 2010 2011 2012 shares for a total of $433 million • 2008 – Repurchased 4.6 million shares for a total of $176 million • 2007 – Completed a $500 million Substantial Issuer Bid (1) Feb 22, 2011 – May 31, 2011 announcement of AXA Canada acquisition (2)Feb. 22, 2010 – Feb. 21, 2011 6
  7. 7. Industry outlook for 2012We remain well-positioned to continue outperforming the Canadian P&C insurance industry in the current environment • Industry premiums are likely to grow at a mid single digit ratePremium growth • Low interest rate environment and reinsurance market conditions will likely lead to firmer conditions over time • Industry combined ratio was 100% in 2011. In 2012, we foresee: – Some improvement from personal auto (prior rate increases and Ontario reforms) Underwriting – Improvement in personal property (mild weather in Q1-2012 and continued premium increases, somewhat offset by an active summer storm season) • Industry ROE was 6% in 2011; we expect 2012 to be in the upper single digit range, bolstered by a strong first half at 11.5%Return on equity • We believe we are likely to outperform the industry’s ROE by at least 500 basis points in 2012 7
  8. 8. Ensuring profitability by mitigating Cat losses Combined Ratios Impacted by Cats Personal Property 113.6% 109.0% 96.5% 103.5% 94.0% Reported Combined Ratio 8.7% 8.6% 5.9% 14.5% 8.1% Cats Ex-Cats 104.9% 100.4% 90.6% 89.0% 85.9% 2008 2009 2010 2011 H1-2012 Home Improvement Plan to Date Still to Come• 2011 impacted by double normal Cat activity • Continuous monitoring of Cat loading to improve• Including July-Aug, 2012 Cat impact similar to 2011 profitability should recent elevated levels persist• CAY results trending towards 15pts improvement • Continued rate increases• Renewals being issued at ~ +9% • Water/hail/wind – higher deductibles, sub-limits• Segmentation by type of loss • New claims initiatives• Claims initiatives on-going • Prevention & education• Product design evolving (e.g. $2k water ded. in ON) 8
  9. 9. Four distinct avenues for growth Firming market conditions (0-2 years) Develop existing platforms (0-3 years)Personal lines • Continue to expand support to• Industry premiums remain inadequate in ON auto our broker partners• Home insurance premiums also on the rise • Leverage addition of JEVCOCommercial lines • Expand and grow belairdirect and• Evidence of price firming in the past 12-18 months Grey Power• Leverage acquired expertise to expand product offer and gain share in the mid-market • Build a broker offer better able to compete with direct writersConsolidate Canadian market (0-5 years) Expand beyond existing markets (5+ years)Capital Principles• Solid financial position • Financial guideposts: long-term customer growth, IRR>20%Strategy • Build growth pipeline with meaningful impact in 5+ years• Grow areas where IFC has a competitive advantageOpportunities Strategy• Canadian P&C industry remains fragmented • Enter new market in auto insurance by leveraging our• Global capital requirements becoming more stringent world-class strengths: 1) pricing and segmentation,• Continued difficulties in global capital markets 2) claims management and 3) online expertise 9
  10. 10. Recent acquisitions are on track AXA Canada JEVCO• Retention of the AXA book has been • Closed September 4, 2012 stronger than expected • A leading provider of specialty and• Customer attrition and broker niche insurance. Strengthens cancellations, in total, have been product offering across IFC comparable to that of the Intact distribution to include: portfolio − Recreational vehicles• Approximately three-quarters of policies have been converted − Non-standard auto• Continue to target $100 million in • Opportunity to improve performance annual after-tax synergies by implementing IFC’s risk selection and claims management expertise. − $37 million run-rate at June 30, 2012 • IRR estimated above 20% • Purchase price reflects a P/B of 1.3x − Targeting $50 million run-rate by end of 2012. 10
  11. 11. SummaryDisciplined pricing, underwriting, investment and capitalmanagement have positioned us well for the future• Largest P&C insurance provider in Canada• Consistent track record of industry outperformance• Solid financial position• Excellent long-term earnings power• Organic growth platforms easily expandable• Successful progress with AXA Canada integration• JEVCO acquisition broadens product offering across IFC distribution 11
  12. 12. Appendices
  13. 13. P&C insurance is a $40 billion market in Canada 3% of GDP in Canada Industry DPW by line of business • Fragmented market1: −Top five represent 44%, versus bank/lifeco markets which are closer to 65-75% −IFC is largest player with 17.2% market share, versus largest bank/lifeco with 22- 25% market share −P&C insurance shares the same regulator as the banks and lifecos • Barriers to entry: scale, regulation, manufacturing capability, market knowledge • Home and commercial insurance rates Industry – premiums by province unregulated; personal auto rates regulated in some provinces • Capital is regulated nationally by OSFI • Brokers continue to own commercial lines and a large share of personal lines in Canada; direct-to-consumer channel is growing (distribution = brokers 67% and direct 33%) • 30-year return on equity for the industry is approximately 10%1 Pro forma IFC’s acquisition of AXA CanadaIndustry data source: MSA Research excluding Lloyd’s, ICBC, SAF, SGI, MPI and Genworth.OSFI = Office of the Superintendent of Financial Institutions Canada 1313Data as at the end of 2010.
  14. 14. P&C industry 10-year performance versus IFC IFC’s competitive advantages Combined ratio 110% • Significant scale advantage 105% • Sophisticated pricing and underwriting Industry1 10-year avg. = 98.0% discipline 100% • In-house claims expertise 95% 10-year avg. • Broker relationships 90% = 94.6% • Solid investment returns 85% • Strong organic growth potential Return on equity Direct premiums written growth 40% 240 220 10-year avg. 30% = 9.3% 200 180 Industry1 10-year avg. 20% 10-year avg. = 18.5%2 160 = 6.0% 140 10% Industry1 10-year avg. 120 = 10.2% 100 0% Year 2001 = base 1001Industry data source: MSA Research. excluded Lloyd’s, ICBC, SGI, SAF, MPI, Genworth, IFC and AXA Canada (in 2011)2ROEs reflect IFRS beginning in 2010. IFC’s 2011 ROE is adjusted return on common shareholders’ equity (AROE) 14 14
  15. 15. Near-term themes to monitor Impact on Industry from Low Yields Reinsurance • Major catastrophes in the world in 2011 have impacted reinsurer’s capital levels P&C Industry • The Canadian industry one of the most profitability 3-5 year conservative markets in the world in terms of Government of Canada bond earthquake coverage required by regulators yield • IFC’s B.C. earthquake exposure increased due to the acquisition of AXA CanadaSource: Insurance Bureau of Canada Ontario Auto Industry Results Industry Capital Levels Excess capital above 200% MCT 15 15
  16. 16. Further industry consolidation ahead Our acquisition strategy Canadian M&A environment • Targeting large-scale acquisitions of $500 million or Environment more conducive to acquisitions now more in direct premiums written than in recent years: • Pursuing acquisitions in lines of business where we • Industry ROEs, although slightly improved from have expertise trough levels of mid-2009, are well below prior • Acquisition target IRR of 15% peak • Targets: • Foreign parent companies are generally in less − Bring loss ratio of acquired book of business to favourable capital position our average loss ratio within 18 to 24 months • Demutualization likely for P&C insurance industry − Bring expense ratio to 2 pts below IFC ratio Our track record of acquisitions Top 20 P&C insurers = 82% of market 2011 – AXA ($2,600 mil.) 2004 – Allianz ($600 mil.) 2001 – Zurich ($510 mil.) 1999 – Pafco ($40 mil.) ($B) 1998 – Guardian ($630 mil.) ($B) 1997 – Canadian Surety ($30 mil.) 1995 – Wellington ($370 mil.)Source: MSA Research; excluding Lloyd’s and Genworth (based on 2010 DPW); IFC’s 2010 DPW includes AXA Canada Source: MSA Research; excluding Lloyd’s and Genworth (based on 2011 DPW ) 16
  17. 17. Historical financials IFRS Canadian GAAP(in $ millions, except as otherwise noted) 2011 2010 2009 2008 2007Income statement highlightsDirect written premiums $5,099 $4,498 $4,275 $4,146 $4,109Underwriting income 273 193 54 117 189Net operating income 460 402 282 361 457Net operating income per share (in dollars) 3.91 3.49 2.35 2.96 3.61Balance sheet highlightsTotal investments $11,828 $8,653 $8,057 $6,605 $7,231Debt 1,293 496 398 - -Total shareholders equity (excl. AOCI) 4,135 2,654 3,047 3,079 3,290Performance metricsLoss ratio 63.9% 65.4% 70.0% 68.2% 66.2%Expense ratio 30.5% 30.0% 28.7% 28.9% 29.0%Combined ratio 94.4% 95.4% 98.7% 97.1% 95.2%Net operating ROE (excl. AOCI) 15.3% 15.1% 9.2% 11.3% 13.6%Debt / Capital 22.9% 14.3% 11.8% - -Combined ratios by line of businessPersonal auto 90.9% 98.1% 94.9% 95.9% 94.5%Personal property 103.5% 96.5% 109.0% 113.6% 102.2%Commercial auto 86.5% 86.0% 79.8% 87.2% 93.7%Commercial P&C 95.6% 90.7% 104.1% 85.3% 90.1% 17
  18. 18. Cash and invested assets Asset class Fixed income Preferred shares Corporate 33% Perpetual and callable floating 64.4% Federal government and agency 28% and reset Cdn. Provincial and municipal 31% Fixed-rate perpetual 24.5% Supranational and foreign 4% Retractable 11.1% ABS/MBS 4% TOTAL 100% Private placements 0% TOTAL 100% Quality: 100% Approx. 87.3% rated ‘P1’ or ‘P2’ Canadian Canadian 93% United States 1% Int’l (excl. U.S.) TOTAL 6% Common shares 100%Quality: 98.5% of bonds rated ‘A’ or better High-quality, dividend paying 100% Canadian companies. Objective is to Canadian capture non-taxable dividend income. * As of June 30, 2012 18
  19. 19. Track record of prudent reserving practices Rate of claims reserve development• Quarterly and annual (favourable prior year development as a % of opening reserves) fluctuations in reserve development are normal• 2005/2006 reserve development was unusually high due to the favourable effects of certain auto insurance reforms introduced during that time period• This reflects our preference to take a conservative approach to managing claims reserves Historical long-term average has been 3% to 4% per year 19
  20. 20. Investor Relations contact informationDennis Westfall, CFAVice President, Investor RelationsPhone: 416.341.1464 ext 45122 Cell: 416.797.7828Email: Dennis.Westfall@intact.netEmail: ir@intact.netPhone: 416.941.5336 or 1.866.778.0774 (toll-free within North America)Fax: Relations 20
  21. 21. Forward looking statements and disclaimerCertain of the statements included in this Presentation about Intact Financial Corporation’s, its subsidiaries’ and affiliated companies’ (collectively, the “Company”)current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developmentsconstitute forward-looking statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”,“believes”, “estimates”, “predicts”, “likely”, “potential” or the negative or other variations of these words or other similar or comparable words or phrases, areintended to identify forward-looking statements. Forward-looking statements are based on estimates and assumptions made by management based onmanagement’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that managementbelieves are appropriate in the circumstances. Many factors could cause the Company’s actual results, performance or achievements or future events ordevelopments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: theCompany’s ability to implement its strategy or operate its business as management currently expects; its ability to accurately assess the risks associated with theinsurance policies that the Company writes; unfavourable capital market developments or other factors which may affect the Company’s investments and fundingobligations under its pension plans; the cyclical nature of the P&C insurance industry; management’s ability to accurately predict future claims frequency;government regulations designed to protect policyholders and creditors rather than investors; litigation and regulatory actions; periodic negative publicity regardingthe insurance industry; intense competition; the Company’s reliance on brokers and third parties to sell its products to clients; the Company’s ability to successfullypursue its acquisition strategy; the Company’s ability to execute its business strategy; synergies arising from, and the Company’s integration plans relating to theJEVCO Insurance Company (“JEVCO”) and the AXA Canada Inc. (“AXA Canada”) acquisitions; managements estimates and expectations in relation to resultingaccretion, internal rate of return and debt to capital position after closing of the JEVCO and AXA Canada acquisitions; various other actions to be taken orrequirements to be met in connection with the JEVCO and AXA Canada acquisitions and integrating JEVCO and AXA Canada in the Company; the Company’sparticipation in the Facility Association (a mandatory pooling arrangement among all industry participants) and similar mandated risk-sharing pools; terrorist attacksand ensuing events; the occurrence of catastrophic events; the Company’s ability to maintain its financial strength and issuer credit ratings; access to debtfinancing and the Companys ability to compete for large commercial business; the Company’s ability to alleviate risk through reinsurance; the Company’s ability tosuccessfully manage credit risk (including credit risk related to the financial health of reinsurers); the Company’s reliance on information technology andtelecommunications systems; the Company’s dependence on key employees; changes in laws or regulations; general economic, financial and political conditions;the Company’s dependence on the results of operations of its subsidiaries; the volatility of the stock market and other factors affecting the Company’s share price;and future sales of a substantial number of its common shares. All of the forward-looking statements included in this Presentation are qualified by these cautionarystatements and those made in the “Risk management” section of our MD&A for the year ended December 31, 2011. These factors are not intended to represent acomplete list of the factors that could affect the Company. These factors should, however, be considered carefully. Although the forward-looking statements arebased upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with theseforward-looking statements. When relying on forward-looking statements to make decisions, investors should ensure the preceding information is carefullyconsidered. Such forward-looking statements are made as of September 4, 2012. Undue reliance should not be placed on forward-looking statements madeherein. The Company and management have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result ofnew information, future events or otherwise, except as required by law. 21
  22. 22. Forward looking statements and disclaimerDisclaimerThis Presentation does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any securities nor shall it or anypart of it form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitment whatsoever.The information contained in this Presentation concerning the Company does not purport to be all-inclusive or to contain all the information that aprospective purchaser or investor may desire to have in evaluating whether or not to make an investment in the Company. The information is qualifiedentirely by reference to the Company’s publicly disclosed information.No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its the directors, officers or employees as tothe accuracy, completeness or fairness of the information or opinions contained in this Presentation and no responsibility or liability is accepted by anyperson for such information or opinions. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide theattendees with access to any additional information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentationthat may become apparent. The information and opinions contained in this Presentation are provided as at the date of this Presentation. The contents ofthis Presentation are not to be construed as legal, financial or tax advice. Each prospective purchaser should contact his, her or its own legal adviser,independent financial adviser or tax adviser for legal, financial or tax advice.The Company uses both International Financial Reporting Standards (“IFRS”) and certain non-IFRS measures to assess performance. Non-IFRSmeasures do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to any similar measures presented by othercompanies. Management of the Company analyzes performance based on underwriting ratios such as combined, general expenses and claims ratios aswell as other performance measures such as return on equity (“ROE”) and operating return on equity. These measures and other insurance related termsare defined in the Company’s glossary available on the Intact Financial Corporation web site at in the “Investor Relations” section.Additional information about the Company, including the Annual Information Form, may be found online on SEDAR at 22